Copies of any of the above-referenced documents will also be made available, free of charge, upon written request to Best Buy Co., Inc. Investor Relations Department at 7601 Penn Avenue South, Richfield, MN 55423-3645.

Described below are certain risks that we believe apply to our business and the industry in which we operate. You should carefully consider each of the following risk factors in conjunction with other information provided in this Annual Report on Form 10-K and in our other public disclosures. The risks described below highlight potential events, trends or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity or access to sources of financing, and consequently, the market value of our common stock and debt instruments. These risks could cause our future results to differ materially from historical results and from guidance we may provide regarding our expectations of future financial performance. The risks described below are not an exhaustive list of all the risks we face. There may be others that we have not identified or that we have deemed to be immaterial. All forward-looking statements made by us or on our behalf are qualified by the risks described below.

The retail business is highly competitive. Price is of primarygreat importance to most customers, and price transparency and comparability continues to increase, particularly as a result of digital technology. The ability of consumers to compare prices on a real-time basis puts additional pressure on us to maintain competitive prices to attract customers.prices. We compete with many other local, regional, national and international retailers and technology service providers, as well as certain of our vendors and mobile network carriers who offer their products directly to consumers. Some of our competitors have greater market presence and financial resources than we do.us and may be able to offer lower prices than us for a sustained period of time. The retail industry continues to experience a trend towardtowards an increase in sales initiated online and using mobile applications, and some online-only businesses have lower operating costs than us and are not required to collect and remit sales taxes in all U.S. states, which can negatively impact the ability of multi-channel retailers to be price competitive.competitive on a tax-included basis. Online and multi-channel retailers are also increasing theircontinue to focus on delivery services, with customers increasingly seeking faster, guaranteed delivery times and low-price or free shipping. Our ability to be competitive on delivery times and delivery costcosts depends on many factors, and our failure to successfully manage these factors and offer competitive delivery options could negatively impact the demand for our products. In addition, becauseproducts and our profit margins. Because our business strategy is based on offering superior levels of customer service utilizingand a multi-channel platform,full range of services to complement the products we offer, our cost structure is higher than some of our competitors. Changescompetitors, and this, in conjunction with price transparency, puts pressure on our margins.

In general, consumer electronics product life cycles (which begin with initial market launch and conclude with maturity or obsolescence) have become shorter and less predictable. This is largely due to rapid technological advancement and innovation and generally faster adoption by consumers. Consumer preferences have also become susceptible to rapid change and this adds to the levelsunpredictability of our business. These factors affect us in a number of ways, for example:

The effects of these variousfactors can also be exacerbated by the competitive factors may have a significant impact on consumer demand for our products and servicesenvironment and the marginsease with which customers can research and compare product features and price. If we can generate from them.

These and other lifestyle decisions,similar factors could have a material adverse effectimpact on our revenues and resultsprofitability.

We source the products we sell from a wide variety of operations.domestic and international vendors. In fiscal 2016, our 20 largest suppliers accounted for approximately 75% of the merchandise we purchased (73% in fiscal 2015), with 5 suppliers – Apple, Samsung, Hewlett-Packard, Sony and LG Electronics – representing approximately 51% of total merchandise purchased (47% in fiscal 2015). We generally do not have long-term written contracts with our vendors that would require them to continue supplying us with merchandise or any other terms. Our profitability depends on us securing acceptable terms with our vendors for, among other things, the price of merchandise we purchase from them, funding for various forms of promotional programs, payment terms, allocations of merchandise, development of compelling assortments of products, operation of vendor-focused shopping experiences within our stores and terms covering returns and factory warranties. To varying degrees, our vendors may be able to leverage their competitive advantages -- for example, their financial strength, the strength of their brand with customers, their own stores or online channels or their relationships with other retailers -- to our commercial disadvantage, with a consequent adverse impact on our profitability. The potential adverse impact of these factors can be amplified by price transparency (which can limit our flexibility to modify selling prices) and a highly competitive retail environment. Generally, our ability to negotiate favorable terms with our vendors is more difficult with vendors where our purchases represent a smaller proportion of their total revenues, consequently impacting our profitability from such vendor relationships.

Some ofTo varying degrees, our products and services are viewed by some consumers to be discretionary items rather than necessities. As a result, our results of operations are sensitive to changes in macroeconomic conditions that impact consumer spending. As a result, consumers may be affected in many different ways, including, for example:

Consumer confidence, employment levels, oil prices, interest rates, tax rates, availability of consumer financing, housing market conditions, andforeign currency exchange rate fluctuations, costs for items such as fuel and food and other macroeconomic trends can adversely affect consumers' demand for the products and services that we offer. Our future results could be significantly adversely impacted by these factors.

Our performance is highly dependent on attracting, retaining and retainingengaging appropriately qualified employees, including our senior managementexecutive team and other employees in key employees.positions. Our strategy of offering high quality services and assistance for our customers requires a highly trained and engaged workforce. The turnover rate in the retail industry is relatively high, and there is an ongoing need to recruit and train new employees. Factors that affect our ability to maintain sufficient numbers of qualified employees include employee morale, our reputation, unemployment rates, competition from other employers and our ability to offer appropriate compensation packages. Our inabilityFailure to recruit a sufficient number ofor retain qualified individuals or failure to retain key employees in the future may impair our efficiency and effectiveness and our ability to pursue growth opportunities. In addition, a significant amount of turnover of senior managementour executive team or other employees in key positions with specific knowledge relating to us, our operations and our industry may negatively impact our operations.

We operate a portfolio of brands with a commitment to customer service and innovation. We believe that recognition and the reputation of our brands are key to our success. The proliferationubiquity of web-based social media means that consumercustomer feedback and other information about our company are shared with a broad audience in a manner that is easily accessible and rapidly disseminated. Damage to the perception or reputation of our brands could result in declines in customer loyalty, decreases in gift card and service plan sales, lower employee retention and productivity, vendor relationship issues and other factors, all of which could materially affect our revenue and profitability.

We operate in a highly-competitive and ever-changing commercial environment. Our success is dependent on our ability to identify, develop and execute appropriate strategies within this environment. Strategies that have proved successful in the past may not be successful in the future. Our current strategy includes transformational change to manycertain areas of our business including our online and in-store customer experience, our distribution system, employee training and engagement, partnership with our vendors, retail execution, services and cost control. We may experience challenges in achieving the goals we have set, and itpursuit of new growth opportunities. It is possible that our strategies may prove to be ineffective and that we may need to make substantial changes to them in future periods.the future. It is also possible that we will be unsuccessful in executing our strategies or that the strategies we will implementthey expose us to additional risks or that strategies that have been successful in the past will fail to produce the desired results.risks. Our results could be materially adversely affected if we fail to designdevelop and execute appropriate strategies. The market value of our common stock and debt instruments could be materially adversely affected if investors are uncertain about the appropriateness of our strategies or our ability to execute them.

Effective management of our large propertyreal estate portfolio is critical to our success.omni-channel strategy. We primarily secure properties through operating leases with third-party landlords. In light of the long-term nature of most of these commitments, it is essential that we effectively evaluate a range of factors that may influence our long-term real estate strategy. Such factors include, for example:

If we fail to effectively evaluate these factors, fail to negotiate appropriate terms which keep us market competitive, or if unforeseen changes arise, the consequences could include, for new leases we enter into, we may incur lease costs that are excessive and cause operating margins to be below acceptable levels. We may also make term commitments that are too long or too short, without the option to exit early or extend. The availability of suitable new property locations may also hinder our ability to maintain or grow our operations. Factors such as the condition of local property markets, availability of lease financing, taxes, zoning and environmental issues, and competitive actions may impact the availability for suitable property.example:

For leased property, the financial impact of exiting a propertylocation can vary greatly depending on, among other factors, the terms of the lease, the condition of the local propertyreal estate market, demand for the specific property, our relationship with the landlord and the availability of potential sub-lease tenants. It is difficult for us to influence some of these factors. If these factors are unfavorable to us, thenand the costs of exiting a property can be significant. WhenWe are still responsible for the maintenance, taxes, insurance, and common area maintenance charges for vacant properties until the lease commitment expires or is terminated. Similarly, when we enter into a contract with a tenant to sub-lease property, we remainusually retain our obligations as the master lessor. This leaves us at risk for any remaining liability in the event of default by the tenant and the impact of such defaults on our future results could be significant.sub-lease tenant.

CertainSome of our operating costs are fixed and/or are subject to multi-year contracts. Some elements of our costs may be higher than our competitors, because, for example, of our differential service offerings or levels of customer service. As discussed above, our revenues are susceptible to volatility from various sources, which can lead to periods of flat or declining revenues. Accordingly, our ongoing drive to reduce cost structure are largely fixed in nature. Demand for our products and services is difficult to predict, which makes it more challenging for us to maintain or increase our operating income. The competitiveness in our industry and increasing price transparency mean that the focus on achieving efficient operations is greater than ever. Asefficiency represents a result, we must continuously focus on managing our cost structure.strategic imperative. Failure to successfully manage our laborcosts could have a material adverse impact on our profitability and benefit rates, advertising and marketing expenses, operating leases, other store expenses or indirect spending could severely impaircurtail our ability to maintainfund our price competitiveness while achieving acceptable levels of profitability.growth or other critical initiatives.

We need sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness and finance investmentbusiness opportunities. Without sufficient liquidity, we could be forced to curtail our operations, or we may not be able to pursue business opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash and liquid investments, credit facilities, other debt arrangements and trade payables. Our liquidity could be materially adversely impacted if our vendors reduce payment terms and/or impose tighter credit limits. If our sources of liquidity do not satisfy our requirements, we may need to seek additional financing. The future availability of financing will depend on a variety of factors, such as economic and market conditions, the regulatory environment for banks and other financial institutions, the availability of credit and our credit ratings and our reputation with potential lenders. These factors could materially adversely affect our costs of borrowing and our ability to pursue growthbusiness opportunities, and threaten our ability to meet our obligations as they become due.

Our credit ratings and outlooks at January 30, 2016 are summarized below. In fiscal 2015, Moody's Investors Service, Inc. maintained its long-term credit rating at Baa2 and revised its outlook from Negative to Stable. Fitch Ratings Ltd.2016, Standard & Poor's Rating Services upgraded its long-term credit rating from BB-BB to BB, maintainingBB+ with a Stable outlook. Moody's Investors Service, Inc. upgraded its outlook as Stable. Standard & Poor's Ratings Services maintained their long-term credit rating atfrom Baa2 to Baa1 with a Stable outlook. Fitch Ratings Limited upgraded its long-term credit rating from BB to BBB- with a Stable outlook.

FutureAny future downgrades to our credit ratings and outlook could negatively impact our access to capital markets, the borrowing cost for future financings and the perception of our credit risk, by lenders and other third parties.thus our access to capital markets, borrowing costs, vendor terms and lease terms. Our credit ratings are based upon information furnished by us or obtained by a rating agency from its own sources and are subject to revision, suspension or withdrawal by one or more rating agencies at any time. Rating agencies may change the ratings assigned to us due to developments that are beyond our control, including the introduction of new rating practices and methodologies.

Approximately one-third of our credit facilitiesrevenue and could resultmore than one-half of our net earnings have historically been generated in higher interest costs on future financings.our fourth fiscal quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. In addition, downgrades may impactthe holiday shopping season also incorporates many other unpredictable factors, such as the level of promotional activity and customer buying patterns, and forecasting and reacting to these factors quickly is difficult. Unexpected events or developments such as natural or man-made disasters, product sourcing issues, failure or interruption of management information systems, or disruptions in services or systems provided or managed by third-party vendors could significantly disrupt our ability to obtain adequate financing, including via trade payables withoperations. As a result of these factors, there is a risk that our vendors. Customers' inclination to shop with us or purchase gift cards or extended warranties may also be affected by the publicity associated with deterioration of our credit ratings.fourth quarter and annual results are adversely affected.

From time to time, our strategy has involved, and may inIn the future, involve, enteringwe may decide to enter into new business ventures, and strategic alliances as well as makingor acquisitions. Assessing a potential opportunity can be based on assumptions that might not ultimately prove to be correct. In addition, the amount of information we can obtain about a potential opportunity may be limited, and we can give no assurance that new business ventures, strategic alliances and acquisitions will positively affect our financial performance or will perform as planned. limited.

The success of these opportunitiesventures, alliances or acquisitions is also largely dependent on the current and future participation, working relationship and strategic vision of the business venture or strategic alliance partners, which can change following a transaction. Integrating new businesses, stores andor concepts can be a difficult task. Cultural differences in some markets into which we may expand or into which we may introduce new retail concepts may not be as well received by customers as originally anticipated.and risky. These types of transactions may divert our capital and our management's attention from other business issues and opportunities and may also negatively impact our return on invested capital. Further, implementingEntering into new partnerships, strategicventures, alliances or business venturesacquisitions may also impair our relationships with our vendors or other strategic partners. We may not be able to successfully assimilate or integrate companiesbusinesses that we acquire, including their personnel, financial systems, distribution, operations and general operating procedures. Weprocedures, or we may also encounter challenges in achieving appropriate internal control over financial reporting and deficiencies in information technology systems in connection with the integration of an acquired company. If we failreporting. Failure to assimilate or integrate acquired companies successfully, our business, reputation and operating results could suffer materially. Likewise, our failure toeffectively integrate and manage acquired companies successfullystrategic ventures, alliances and acquisitions could adversely affect our profitability and liquidity and may lead torequire impairment of the associated goodwill, and intangible asset balances.tradenames or other assets.

The use and handling of personally identifiable data by our business, our business associates and third parties is regulated at the state, federal and international levels. We are also contractually obligated to comply with certain industry standards regarding payment card information. Increasing costs associated with information security, such as increased investment in technology and qualified staff, the costs of compliance and costs resulting from fraud could cause our business and results of operations to suffer materially. Additionally, the success of our online operations depends upon the secure transmission of customer and other confidential information over public networks, including the use of cashless payments. While we take significant steps to protect this information, lapses in our controls or the intentional or negligent actions of employees, business associates or third parties may undermine our security measures. As a result, unauthorized parties may obtain access to our data systems and misappropriate employee, customer and other confidential data. There can be no assurance that advancesAdvances in computer capabilities, new discoveries in the field of cryptography or other developments willmay not prevent the compromise of our customer transaction processing capabilities and customer personal data. Furthermore, because the methods used to obtain unauthorized access change frequently and may not be immediately detected, we may be unable to anticipate these methods or promptly implement preventative measures. Any such compromise of our security or the security of information residing with our business associates or third parties could have a material adverse effect on our reputation or our relationship with our employees, which may in turn have a negative impact on our sales,revenue, and may expose us to material costs, penalties and compensation claims. In addition, any compromise of our data

security may materially increase the costs we incur to protect against such breaches and could subject us to additional legal risk.

The threatrisk or actual occurrence of one or more natural disasters or other extreme weathervarious catastrophic events whether as a result of climate change or otherwise, the threat or outbreak of terrorism, civil unrest or other hostilities or conflicts, could materially adversely affect our financial performance. TheseSuch events may result in damage tobe caused by, for example:

Such events can also adversely affect our work force and prevent employees and customers from reaching our stores and other properties can modify consumer purchasing patterns and decrease disposable income, and can disrupt or disable portions of our supply chain and distribution network. As a consequence of these or other catastrophic events, we may endure interruption to our operations or losses of property, equipment or inventory, which would adversely affect our revenue and profitability.

Sales of our exclusive brands products, which primarily include Insignia, Modal, Dynex, Init, Platinum and Rocketfish branded products, represent an important component of our revenue. Most of these products are manufactured by contractedcontract manufacturers based in southeastern Asia. This arrangement exposes us to the following additional potential risks, which could materially adversely affect our reputation, financial condition and operating results:

Maintaining consistent quality, availability and competitive pricing of our exclusive brands products helps us build and maintain customer loyalty, generate salesrevenue and achieve acceptable margins. Failure to maintain these factors could have a significant adverse impact on the demand for exclusive brand products and the marginsprofits we are able to generate from them.

Our statutory, regulatory and legal environments expose us to complex compliance and litigation risks that could materially adversely affect our operations and financial results.operations. The most significant compliance and litigation risks we face are:

Regulatory activity focused on the retail industry has grown in recent years, increasing the risk of fines and additional operating costs associated with compliance. Additionally, defending against lawsuits and other proceedings may involve significant expense and divert management's attention and resources from other matters.

Changes to laws and regulations such as these could adversely affectimpact our operations.reputation, our ability to continue operations and thus our revenue and profitability.

 

We offer promotional financing and credit cards issued by a third-party bankbanks that managesmanage and directly extendsextend credit to our customers. The cardholdersCustomers choosing promotional financing can receive extended payment terms and low- or no-interest promotional financing on qualifying purchases. Total revenues from these programs accounted for approximately 20% of our revenue in fiscal 2015. We view these arrangementsour financing programs as a way to generate incremental salesrevenue of products and services from customers who prefer the financing terms to other available forms of payment. Approximately 21% of our fiscal 2016 revenue was transacted using one of the company's branded cards. In addition, we earn profit-share income from our banking partners based on the performance of the credit card portfolio, and the amount ofprograms. The income we earn in this regard is subject to numerous factors, such asincluding the volume and value of credit card ortransactions, the terms of promotional financing transactions,offers, bad debt rates, interest rates, the regulatory and competitive environment and expenses of operating the program. Adverse changes to any of these factors could impair our ability to offer these programs to customers and reduce our ability to earn income from sharing in the profits of the program.programs.

 

 

The effective and efficient operation of our business is dependent on our management information systems. We rely heavily on our management information systems to manage all key aspects of our business, including demand forecasting, purchasing, supply chain management, point-of-sale processing, services fulfillment, staff planning and deployment, website offerings, financial management, reporting and forecasting and safeguarding critical and sensitive information. The failure of our management information systems to perform as we anticipate (whether from internal or external factors), or to meet the continuously evolving needs of our business, could significantly disrupt our business and cause, for example, higher costs and lost revenues and could threaten our ability to remain in operation.

In addition, weWe utilize complex information technology platforms to operate our websites and mobile applications. Disruptions to these services, such as those caused by unforeseen traffic levels or other technical difficulties, could cause us to forego material revenues and adversely affect our reputation with consumers.

 

 

We engage key third-party business partners to support various functions of our business, including but not limited to, information technology, web hosting and cloud-based services, human resource operations, customer loyalty programs, promotional financing and customer loyalty credit cards, gift cards, customer warranty, technical support and insurance programs. Any material disruption in our relationship with key third-party business partners or any disruption in the services or systems provided or managed by third parties could impact our revenues and cost structure and hinder our ability to continue operations, particularly if a disruption occurs during peak revenue periods.

 

We operate international retail locations in Canada and Mexico. In addition, we have a presencewholly owned legal entities registered in various other foreign countries, including Bermuda, China, Germany, Hong Kong, Japan, Luxembourg, the Republic of Mauritius, the Netherlands, Taiwan, Turks and Caicos, and the U.K. During fiscal 2015,2016, our International segment's operations generated 11%8% of our revenue. Our future operating results in these countries and inIn general, the risk factors identified above also have relevance to our International operations. In addition, our International operations also expose us to other countries or regions throughout the world where we may operate in the future could be materially adversely affected by a variety of factors, many of which are beyond our control,risks, including those related to, for example:

These factors could significantly disrupt our product and service assortments, marketing and promotional strategy and store and website designs, among other factors, and this could adversely impact the results of theseInternational operations and the viability of these ventures.have a material adverse effect on our revenue and profitability and could lead to us incurring material impairments and other exit costs.